Working into the evening, Sterling Savings banker Michael Williams wraps up another day of SBA lending in Portland, Ore.’s “Silicon Forrest.” As business development officer for Sterling Savings’ SBA division, Williams knows firsthand the issues faced by ecommerce sites looking for an SBA-guaranteed leg up.
“As long as you have inventory to handle and a need for capital, there’s almost surely an SBA loan to fit your venture,” Williams says. “About 97 percent of the businesses in the U.S. qualify for a small business loan, and believe me, they’re not just traditional bricks and mortar loans.”
For lenders like Williams, mom-and-pop ecommerce sites provide a refreshing alternative to the revenue black holes of those in pre-dot-com-bust years. According to the SBA-funded “Strategies for Small Business Success” report, 35 percent of firms with fewer than 10 employees gain 10 to 99 percent of current sales from their websites. Meanwhile, 65 percent of all firms with a website either make a profit or at least cover their website costs thanks to their online sales.
That’s good news for ecommerce owners hitting the banks for a loan. “If you have a good sales record, lenders don’t really care whether your customers come into a store or just transfer you money online,” says Bill Dunkelberg, chairman of the board for New Jersey-based Liberty Bell Bank and chief economist for the National Federation of Independent Businesses. “If your sales are doing well, you will look bankable.”
No track record, no problem
Most businesses – ecommerce or not – have to show five years of financials before a bank says “Yes” to business financing. That’s not the case when financing’s backed by the SBA. Thanks to a new SBA Standard Operating Procedure that takes effect Aug. 1, even site owners without a track record have a shot at getting the business loan they need.
“Start-ups are one of the things that the SBA can really help with,” Williams says. “The site has to be well collateralized, it has to be well thought out, and often the loan-to-value isn’t going to be as good as what you’d get for a commercial building or established business.” It may be 50 percent of the value of the real property put up for collateral, rather than up to 100 percent. But it’s a business loan, at a slightly higher but still decent interest.
Whether an ecommerce site is long-standing or upstart, SBA-backed loans can be used for working capital, purchase of machinery and equipment, construction or purchase of real estate for business use, business purchases or business buyouts. There are micro-loans for less than $10,000, low-documentation loans for up to $100,000 and the 7(a) loan program for loans up to $1 million. (Note that the SBA provides government-backed “insurance” to lenders for loans made to small businesses; it does not make direct loans or provide start-up grants. Borrowers pay a “Guaranty Fee,” which can be taken as a direct tax credit on many state tax returns.)
Thanks to programs like this, and the flush of business-targeted credit cards like American Express’ new Plum Card, insiders say entrepreneurial firms are largely escaping the so-called “credit crunch.” “We have no evidence, other than the problems they’re having on the Wall Street banks, that funding to small firms is being affected,” says Dunkelberg, who each month surveys up to 4,000 of the NFIB’s half-million members for its Small Business Economic Trends report. “Since there’s been a credit crunch back in December, there’s been no change in the availability of loans to these firms.”
Less risk online
The very nature of running a business online seems to abate some of that risk. “The Internet presence both lowers their cost of obtaining their customers,” Dunkelberg admits, “and attracts customers who want the convenience of ordering online.” Online firms also tend to have increased gross revenues, leveling disparities found offline around company size or owner gender, reports the Center for Women’s Business Research. Online businesses also bring in more-affluent buyers, less concerned about economic slumps, according to the SBA-funded “Strategies for Small Business Success” report.
And those are good selling points for any ecommerce firm going after a loan.
“Every bank has their own way of doing SBA; they may choose to participate in all of the SBA programs or just one,” says Williams, filling out the last piece of paperwork for the day at Sterling Savings. “But while our commercial bankers can offer an 80 percent loan to value on a building for your business, the SBA loan—which at our bank must also be backed by real estate—may give you up to 100 percent.” (The ratio is determined by the lender’s evaluation of assets, experience, Profit and Loss reports, and accountant-certified balance sheets.)
“When it comes down to needing ‘so much’ to make that business plan happen,” Williams says, “an SBA loan may be just the solution.”
- Finance Primer: Guide to SBA’s Loan Guaranty Programs (a free online course through the SBA)
- Sample of SBA loan terms: Sterling Savings Bank